Looking out for vulnerable customers

Bovill

 

Advisers expect the FCA to start formally supervising the treatment of vulnerable customers in the next five years according to a recent survey. To stay on the front foot, firms should have clear processes to identify and help a vulnerable customer. Here’s how.

The identification and treatment of vulnerable clients has long been a focus for the regulator. It was at the centre of its most recent mission statement. But what does the term ‘vulnerable’ actually mean and how does it impact your clients and business?

What is a vulnerable customer?

The FCA defines a vulnerable customer as ‘someone who, due to their personal circumstances, is especially susceptible to detriment, particularly when a firm is not acting with appropriate levels of care’. It’s important to remember that the level of a client’s vulnerability is very personal to their circumstances and the time frame for this potential vulnerability may vary.

The FCA has divided the causes of vulnerability into four categories:

In practice, what do these categories mean?

Health: A client’s physical or mental health can vary throughout their life. Some clients may have learning difficulties that may affect their understanding of financial services. Others may have displayed a very detailed understanding of financial services throughout their life however later on they may develop dementia which may hinder their capabilities.

Resilience: It has been identified that 30% of UK adults are unable to bear financial losses. This means that all the money they have is needed just to ‘get by’ and if this is lost, it will have a significant impact on their standard of living. This could include financial hardship, stress, and inability to pay bills. All this would have an impact on a person’s health and wellbeing.

Life events: The stress from traumatic events such as redundancy, divorce or bereavement of a loved one could all have a significant effect on a person’s ability to engage with their finances and make sound decisions.

Financial capability: Financial literacy may differ between individuals. A low level of financial understanding may bear no relation to a person’s overall intelligence, but it will have an impact on how they understand and relate to financial services.

When do customers become vulnerable?

The simplest way to help your team understand the nuances of what makes a client vulnerable is to look at specific examples. Below are two case studies to illustrate how changes in a person’s life may increase their vulnerability

Vulnerable customer 1: Maureen

Maureen is 62 years of age, she is a housewife and has three grown up children who all live abroad. Her husband, Brian died six months ago. Brian was the sole breadwinner and took responsibility for the finances within the household. Brian left Maureen a substantial life insurance policy as well as a spousal pension.

While Maureen has adequate financial resources, she does not possess any knowledge and experience when it comes to financial services. Maureen will be vulnerable for a number of reasons. Her grief in dealing with the loss of her husband may hinder her ability to make financial decisions. She will also need further help in how best to manage her money as she has never had to budget in the past and will need to assess whether the income and assets are sufficient to maintain her lifestyle and support her throughout the rest of her life.

Support: There are several ways to support Maureen. Maureen should be given the opportunity to have a relative or close friend accompany her to any financial meetings to provide additional support. Any financial advice offered to her, should be offered over a number of meetings to allow her to have sufficient time to reflect on any decisions taken.

Vulnerable customer 2: Arjun

Arjun has recently relocated from India to the UK. He is 19 years of age and has moved to the UK to work in the family business. Arjun has very basic understanding of the English language. He has moved from a rural area in India and the UK offers many new experiences for him. Arjun only partially completed his education due to his family home being in a very remote area and from his early teenage years he started working locally on a farm.

Arjun may require a basic bank account for his wages to be paid into. However, due to Arjun’s lack of understanding of the English language, this could pose an issue for him accessing and understanding financial services in the UK.

Support: Where possible, you could offer Arjun the opportunity to have a friend or relative accompany him to help translate. You could also provide additional information and resources such as directing him to the Money Advice Service website.

Vulnerability can be evident in clients from a wide range of circumstances and backgrounds. So how can firms consistently make sure they are protecting the most vulnerable clients?

Make protecting a vulnerable customer ‘business as usual’

Identifying and dealing with a vulnerable customer needs to be part of your processes and culture. Mapping processes which identify triggers for vulnerability, making sure you have the right approach to record keeping and training and supporting your people are key.

  1. Identify vulnerable clients

There are many types of vulnerability so it’s difficult to set out a check list. The FCA’s Occasional Paper N.8 sets out a non-exhaustive list. When interacting with clients, staff should look to identify various trigger events such as lack of understanding, signs of stress or clients’ inability to manage basic tasks. Once a potential vulnerability is identified, a tailored approach to dealing with that client may be more appropriate to service their needs.

 

  1. Training

All staff involved with providing a service to clients should be trained to identify possible vulnerabilities. This should not only include the identification of potential vulnerabilities but also how to empathise with clients and what steps are available and appropriate to support clients who are vulnerable for particular reasons.

It’s also important to support staff through this process. They may deal with very difficult situations and support to staff is vital. It is important to ensure it is clear where staff should turn to for help if they require assistance dealing with a situation.

  1. Record keeping

Any assessment of a client as vulnerable must be worded sensitively, particularly as it may be ‘special category’ data under GDPR. Remember clients have a right to request records of information a firm holds on them.

Regular reviews of a client’s situation should take place as some vulnerabilities could be temporary. It’s important to develop a system to have various monitoring procedures in place to check whether a client’s vulnerability is being reassessed at appropriate intervals, given the nature of the vulnerability.

Having a robust vulnerable clients’ policy, which is specific to your business, is crucial. This policy should be embedded throughout the business and ‘buy in’ from staff is key. Having adequate systems and controls to allow the policy to function well, will help to ensure the appropriate client outcomes are achieved.

Bovill can help

We have twenty years’ experience helping retail and investment firms understand the regulators’ perspective on how they deal with customers. We can provide advice, help with processes or training to help you deal with a vulnerable customer. Get in touch to find out more.

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